Disclaimer: I have zero education in economic theory. I didn’t even take A-Level Economics. Everything in this post is based on observation and logical reasoning from a layman perspective.
Some thoughts for the economic impact of COVID-19 in the year 2020 CE (Coronavirus Era):
1. We are not sinking yet because of support measures
Currently, there are a lot of support measures such as rental waivers, payouts for lost/reduced income, etc. This is the reason why the Singapore population has not been hit by a mass wave of bankruptcy, poverty and homelessness.
Most companies would not be able to pay all their staff full wages if they have zero revenue for a prolonged period. Some industries like cinemas, spas and tourism will be closed for 3 months or even longer.
2. There will be a ‘final wave’ of economic problems after the COVID-19 situation improves
Some forms of business relief only provide for a suspension of penalties, and not a full waiver of obligations. For example, if you took a loan to buy a machine, the bank cannot seize the machine because you are unable to pay the instalments. However, the unpaid instalments plus interest will still be payable after the suspension expires.
If a company was counting on routine monthly profits in order to pay off the loan, where is it going to find the money if it is closed for months? When the COVID-19 situation ends, it will face a pile of accumulated debt with little or no profits to pay it off.
For construction companies, they may not face penalties for delayed completion, but will have to take an additional 2-3 months to complete their construction work. This incurs additional costs in terms of workers’ wages and equipment rental charges. Will they be able to absorb these costs?
These economic problems will surface AFTER the pandemic, when the support measures expire. So we should not assume that the economy will improve along with the disease situation. It could be the opposite!
3. Some forms of business will become unprofitable and have to close anyway
Singapore is a densely-populated city and property costs are high. Some businesses rely on large crowds of customers, which will not be possible under proposed social distancing measures and limits on group sizes.
For example, some concerts will not be profitable if the audience size is limited and hence fewer tickets are sold. Mass events like Anime Festival Asia may be downsized or cancelled if expected visitor figures are too low. Cafes and pubs which emphasise the dine-in experience will also suffer if they have to reduce seating capacity.
The budget airline model of 薄利多销 (low profit margin and high volume) will most likely be unsustainable in the near future due to restrictions on international travel. Many airlines will not be quick to add capacity after the pandemic.
4. We will start finding out which companies have been cooking their books
The Madoff Ponzi scheme ran for almost 20 years, but collapsed during the late-2000s financial crisis due to sudden investor withdrawals. Similarly, oil-trading firm Hin Leong was recently found to have hidden losses for the past few years, only becoming unsustainable during this year’s oil price drop.
During good times, such wrong-doing can be disguised, but during financially stressful situations like now, things are going to unravel. Be prepared for more skeletons in closets to be revealed.